How Kynikos Associates Profited from the Gaming Bill

http://www.midasoracle.org/2007/01/...kos-associates-profited-from-the-gaming-bill/

This is how hedgefunds justify their large fees.

Story explains how James Chanos may have profited from advance knowledge that the Gambing Bill would pass.

The FT has an excellent article about short seller James Chanos predicting and profiting from the gaming bill.

His hedge fund, Kynikos Associates, had put a large slice of its $3bn in assets on a bold punt that shares in the internet gambling sector were about to go into free-fall.

And on October 2, shares in the companies did precisely that as about $5bn was wiped off their value in just a few hours of trading in response to a US Senate decision to introduce tough new laws cracking down on gambling on the web.

It took the industry and the markets, in fact almost everyone except Mr Chanos and his team of traders, by surprise. The consensus view had been that the sector was about to ride higher on a wave of consolidation.

They say “more tuned in” but I have another idea – it was pure connections. It’s likely he knew information no one else did about the bill before it passed. All the research in the world didn’t reveal it to other speculators - so who else knew about Bill Frist’s sneak attack?

One Senator that would have been involved is John Ensign of Nevada. As a Las Vegas based Senator, who has supported protectionism against gambling expansion outside Nevada, he would have a strong incentive to see this bill pass.

Ensign and Frist had a common interest in seeing the gaming bill pass and a close relationship besides.

Since it was very likely Ensign knew bill would be pushed through, he would have discussed it with relevant constituents and close Las Vegas GOP colleagues – including George Chanos.

Who is George Chanos?

Not only a cousin to hedge fund manager James Chanos who, “considers him a brother,” he is the Las Vegas Attorney General and long time GOP insider – he worked for the Nevada Republican Party for nearly a decade.

George Chanos attended UNLV and worked in student government with Senator Ensign who later endorsed him for his Attorney General position. Chanos and his wife are also small campaign contributors to Senator Ensign.

While there is no direct proof that Georges Chanos passed information to James Chanos - the chain of information and connections are clear. Frist and Ensign knew that the bill would pass. George Chanos found out and passed the information to his cousin James Chanos. James used it to make a massive bet on the sector.

We are not believers in information socialism or “illegal insider trading” but of Occam’s Razor. This wasn’t a bold trade based on a research edge – it was a simple information advantage.

FT called the trade a “million-to-one-chance,” it would be - if your cousin wasn’t close with the Senator.

 

Wish I had taken a big short position as a hedge against getting kicked out of online gambling. The put premium would have been worth it.

Traveler

 

Seems like Kynikos Associates follows a philosophy similar to the new meaning of the word cynic instead of the initial one.